Good day, and welcome to the FY18 Q1 Inter Management Statement Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Mike Powell, Group CFO. Please go ahead sir.
Good morning, everyone. Thank you, Kira. Thank you for joining us this morning and welcome to the Ferguson conference call for our 2018 Q1 results. I'm joined here with Mark Ferron, our Head of IR, as you know, and Nick Hopkins, that most of you would also know. Just to note, it's obviously our first set of results in U.
S. Dollars. Given that the majority of our profits are now in U. S. Dollars.
And clearly, hopefully, that hasn't caused you too much disturbance updating your models And hopefully most of you have managed to do that now. So overall, I think first up, it's worth saying, I'm really pleased with our performance in Q1. It's certainly in line with where we expected us to be and certainly sets us up well for the rest of the year with good momentum going forward. Let me firstly start with some highlights for the quarter and then obviously we'll open up for questions. Revenue growth for the group was good.
We had organic growth up 7.6% in the quarter. Acquisitions adding close to nearly another couple of percent, bringing the total growth at constant currency to 9.3%. Gross margin performance was good. We continue to make some incremental improvements there, and that moved up some 20 basis points in the period. And we controlled our operating costs well.
All that means that leads down to trading profit coming in at $394,000,000. That's 13% ahead of last year at constant exchange rates. On debt, importantly, at the end of the quarter, that was also in line with expectations $790,000,000. That was after completing, nearly 100,000,000 sterling of the 500,000,000 sterling buyback that we announced at the full year results. And I guess, sat here today, we've probably done about 180 590,000,000 sterling of that.
So nearly double that amount as I sit here today. There's no change to our position on acquisition since we last spoke to you guys in early October. The full year results, that does mean we have completed 5 acquisitions in the quarter all in August September. 2 in the U. S.
And 3 in Canada and Central Europe for a total consideration of $109,000,000 and the pipeline still remains reasonable on M And A. We also announced during the quarter the agreement to sell Stark, the Nordics Building Materials business for 1,025,000,000,000 before costs. We have retained a small number of surplus properties, which value at around 1,000,000, and we'd expect to sell that, those properties and exit those properties in due course. The transaction for the Nordics disposal is conditional on receiving merger clearance from the relevant competition authorities and we'd still expect to close that deal in early 2018. And clearly, once I've got the money in the bank, as I said at the year end, we'll go through our normal process, normal course of events, and we'll update the market on the group's asset allocation plan.
In due course, including any utilization of any excess cash. Let me jump into the operations just in a little bit more detail, I haven't given you the group position. Starting with the U. S, the U. S.
We generated good strong organic revenue growth in the quarter. That was up 8.3%. That includes price inflation of about 1% and then acquisitions contributed a further 2%. Well, we did see a small level of disruption at the beginning of the quarter from the hurricanes as we said on the year end call. But in total across the quarter, there was no material impact, and I don't expect any impact going forward either.
That organic growth was generated widespread geographically across the U. S. And also across all of our business groups. So good growth geographically and across the business sectors. And sales grew well in the all of the end markets.
We have residential and commercial markets about 8% to 9% ahead. Civil And Infrastructure did well just over about 10% and industrial growing at about 3. U. S. Gross margins improved, costs controlled well, and trading profit coming in in the U.
S. At 36 $3,000,000, that's $45,000,000 ahead year on year. Turning to the UK, UK was up 3.2%, principally as a result of increased selling prices. However, the UK RMI market remains weak during the quarter and the economic backdrop, as you all know, remains challenging. Gross margins were lower in the UK business in competitive markets as customers resisted supplier price increases.
And trading profit was a touchdown at $21,000,000, $1,000,000 lower than last year's $22,000,000. And therefore, our main focus on the UK continues to be the execution of our transformation plan. This remains on track Though it is fair to say we become we are becoming increasingly focused on accelerating the pace of execution to lower the cost base of that business. In Canada And Central Europe, that business grew well. Good organic growth 7.7 percent margins ahead, cost controlled well and trading profit of $24,000,000, some $5,000,000 ahead of last year.
I'm also pleased to say we're set here early December, but since the end of the quarterly reporting period, revenue growth has been broadly in line with the first quarter. So in summary, we're pleased with the growth rate at the moment, particularly in the U. S. Before we all get too carried away, do remember it's the end of the first quarter only, and we do have much tougher comps to come particularly in Q3 and Q4. And therefore, from the notes that I've seen this morning, most people look as though they're holding their numbers.
And therefore, certainly at the moment, we're not expecting much change to analyst consensus. I think that's the overview from ourselves. Kira, if I can hand back to you and look forward to taking the first question.
You.
You.
We will now take our first question from Robert Barry from Susquehanna. Please go ahead. Your line is open.
Hey, guys. Good morning. Can you hear me okay?
Good morning, Robert. Good morning, Robert. Hey, you're loud and clear.
It really is good morning for you. It's 2 am in your neck of the woods.
Yes, exactly. Exactly. Given we're now in U. S. Dollars and the name has changed, I would not project to the call moving to 8 am in a U.
S. Time zone, but we could take that offline. So just a few things here. 1 on the gross margin, I'd like to see that up 25 curious if you could unpack some of the drivers there and in particular to the extent pricing is contributing And then on the conversion rate you saw in the U. S.
Business, curious if that's what you'd expect it to track at, it's kind of below double digit rate for the rest of the year. And then maybe just thirdly on tax, a big topic now in the U. S. Clearly, just curious based on what we've seen so far, how we should be thinking about that? I assume a lower corporate rate would help, but any potential offsets you've heard being in the proposal that, that investors should have top of mind.
Thank you.
Robert, thanks. Thanks for your questions. It's either in a late night or early morning for you. I'm not sure. Gross margin yet, I mean, I think we've roughly covered it in the release.
I mean, the organic growth rate for the group had about 1% to 1.5% price increases in it. That's sort of 1% in the U. S. And a bit more elsewhere. The rest obviously is therefore volume growth.
The flow through or the conversion, I think you called it, we tend to call it flow through, but just to make sure we're talking the same language. So the incremental profit from the incremental revenue. Again, if you do the math in the U. S, it was over 10%. I have guided at the full year results that I thought the flow through would be around 9% this year.
We are experiencing some headwinds on labor inflation in the U. S. Of about 3.5 to 4. That hasn't changed since we spoke. So I think long term in good markets, we would still expect low double digits, but we have guided this year to 9.
There's no reason today for me to change that guidance. You know, it was a good Q1, but just to scale it, the difference sort of between the 9% drop through, and a 12% drop through is only something like 8 or $10,000,000, on a cost base annually that's over $4,000,000,000. So, it isn't the you can get lost in the percentages if we're not careful. And again, I'm always very keen to say We don't run the business quarter by quarter. So Flowserve is certainly good.
I would still stick to my guidance for the full year of around the 9% clearly, if that changes at the half year, I'd clearly update the market, but no need to change that at the moment. And tax, I'm glad somebody brought tax up straight away. You are Yes, no, tax, again, the legislative changes all over the press, please, the house No, not at all. It is one we continue to watch as we should. Clearly, the House and the Senate have run and pass their own programs, the 2, paths need to come together and be debated and then become legislation.
Clearly when that happens, we'll look at it. There are pages and pages of amended legislation from both houses. The 2 main drivers for us, as you rightly picked up, Robert, one is the reduction in the headline corporate tax rate. And both houses look at around 20% for that. The other big one for us is interest deductibility.
Into the U. S, or out of the U. S. The 2 houses have different views on that. They both disallow it to a large stent, but for varying degrees.
How those 2 levers interplay with each other matters to us, And of course, as with all legislation, it isn't often the 2 headlines that matter. It's what's causing the detail of legislation that can often either have unintended consequences that just needs working through. So there's no change to our tax guidance for this year. We'll continue to look at it. Clearly, if the corporate tax rate comes down and has a bigger effect than the interest deductibility lever.
That would be, a small, small gain for Ferguson as a whole. But we'll continue to keep abreast of it and continue to update the market as this stuff gets put into legislation, which will be in the next month or 2. Robert, does that answer your questions? Thank you.
Our next question comes from Sophia Sotomayor from Exane BNP Paribas. Please go ahead. Your line is open. Is you mentioned during the call, a reasonable acquisition pipeline, if you could maybe specify which areas of growth you are seeing? And my second question is on how much extra OpEx is going into the U.
S. Business and what is it going to be spent on?
Yes. Thanks, Sophia. Yeah, reasonable acquisition pipeline, there's nothing we always struggle with how describe this because you guys always play on whether it's reasonable or good or there's no difference in our pipeline today than there was, 2 months ago. And there's certainly no change in our approach to it. The fact that we did 5 in the 1st 2 months of the year and none in the 2 months doesn't mean anything, acquisitions do become a long lumpy and bumpy.
We continue to look, as we said at the year end, in a number of areas, they all have to be core The main focus is going to be deploying our capital in North America. Though as you've already heard me say this morning, we actually did 3 in Canada and Central Europe, one of which was actually in Holland. So where we own businesses, we will deploy capital where we see there is value creation to be had. The one in Holland was quite small as it happens, but I think where we earn assets, we will deploy capital, whether that be in organic or in M And A. So I think no change.
We'll continue to look at various platforms that help us as well as traditional bricks and mortar, if you like. In terms of the OpEx, mean, the OpEx generally, will grow as the business grows. This, again, we look at fleet We have some increases in marketing, and I've touched that we already have some increases in labor. But nothing really to pull out specific in terms of OpEx in any of our businesses really
there's a fair amount going in, obviously, to technology as well, not to fear, and we are still rolling out, reasonably, selectively the MDCs are these ship hubs that we've talked about, probably the other area.
Thank you. Our next question comes from Ritesh Kumar from HSBC. Please go ahead. Your line is open.
Hi, good morning. Thanks for giving the color on wage inflation and the price increases. Just picking through the numbers, you're implying that the second half flow through rate will come down to 9%. But isn't the wage inflation you're seeing broadly consistent with what your peers are? And don't you think the price increases can be a bit more stronger in the second half of the year?
Yes. So wage inflation, it will be in line with the P. I mean, we clearly operating in competitive markets in all of our territories. I think the importance for us around price. It's not just a price issue.
It's around service. So I think John talked quite a lot at the year end, and we continue to work with our customers to make sure that they are getting you know, the right service and the right products, at the right cost. So we often use the example where if a customer doesn't want a salesperson, that's fine. We offer them a salesperson. I think it's around the right pricing for the right customer with the right portfolio of goods rather than actually a direct link between wage inflation and just price.
I wish it was actually that straightforward. It clearly isn't And therefore, our portfolio of offerings and the different channels that we offer to our customers, with the appropriate service is really where we focus our efforts, Rajesh. And clearly on the wage inflation, just our associates are critically important to us. We have a significant number of associates that provide that service to the customer. And we're very proud of how they operate.
So I think being competitive in a competitive market remains important to us on the associate side as well.
That's very useful to understand. Thank you very much. And just on the, when you say 1 to 1.5% price increase, I'm assuming when you're growing faster in civil infrastructure, which is contracted, that mix should be bringing the average price increase down?
Or is it sorry, I'm not
adjusted right?
I'm just trying to understand if that price number is mix adjusted or is it a headline price number? Because
It's across the whole portfolio. It's across the whole portfolio of all of our businesses across all of our territories. And clearly, you know, must by definition applied to the shorter term nature of our business, because a number of customers have fixed prices. So So as I said, in the UK, prices, if you look at just price inflation going out, the UK is higher than the U. S.
Or Canada and Central Europe. But of course, the other side of that equation is supplier cost increases too. So you have to be slightly careful just looking at revenue inflation. But the question was, what was revenue inflation for the group? The answer is about 1 to 1a half.
That's very useful. Thank you. And just last one, I promise. The supplier if you're getting 8% type volume growth, do you think the accrual pace of the supplier rebate for the if, likely to change if the volume rate continues or do you assume the volume rate growth rate to slow down through the year?
No, so well, I mean there's no sort of effect within quarters of rebates. I'm not sure if that was your question, but I mean, we continue to work with suppliers. We have a number of rebate schemes, some are, you know, per piece some are tiered, to volumes, but no, I wouldn't expect a material change in rebates. And again, our supplier relationships remain very, very important to us. This is a good opportunity for our suppliers to increase with us as has always been the case, particularly in the USA.
You know, Ferguson and suppliers USA, if I can call them on that, have all grown up together very successfully. And and we look forward to continuing to do that with our suppliers there. So but to answer your question, nothing material change on supplier rebates.
Thank you. Our next question comes from Ainsley Lammin from Canaccord. Please go ahead. Your line is open.
Hi, thanks. Morning. Just two questions for me. Firstly, on the U. S.
Commercial side, I think you comment that you're seeing reasonable growth there. And just want to look at some of the kind of government macro statistics. It does suggest that area has slowed over recent months. I just wondered if you could give a bit more color on how you see the commercial, particularly the kind of subsegments within it and what the outlook is there? And then secondly, just on the UK obviously, gross margins down.
You're talking about a bit more price competition. Is that reflective of kind of the competitors changing or emphasis maybe on pricing? And what would you need pricing to be in calendar 2018 to recover your cost increases? Thanks.
Ainsley, thanks. Yes, you are absolutely right. In commercial, the I guess, the public stats, governments, stats, if you just take commercial as a whole, are certainly weakening Though again, just in terms of the data, they are still growing. So they're growing from a very good base. They're just up against much more difficult comps.
So Certainly, on the slides that we tend to show at the half year in the full year, if I look at commercial market, a think at half year 'seventeen, so nearly a year ago, we were showing that market growing 6% to 7%. At the full year, you will have heard me say it was 5 to 6% and today you're hearing me say 3%. Those are still good growth numbers and certainly for those brits on the call, 3% still feels pretty good. Those are markets we can make good money in. So whilst they are certainly slowing, which is you have rightly picked up, Ainsley, I think when you break the data down, and we tend to look at the put in place data, if you look at the non residential, it does depend on where you play.
So power is a large negative. Some of the manufacturing is a large negative. But some of the other sectors are still growing quite nicely. If you look at lodgings, offices, educational areas where we play, they are still growing somewhat higher than the 3%. And hence, you see our performance doing quite nicely in commercial.
So hopefully that explains what could be that perceived disconnect between the the sort of the publicly available data and how we're performing. I think we continue to perform well in that sector and outperform the data. The danger with the data is it does include a whole load of sectors. Your question on the UK on gross margins, yes, I mean, listen, we are disappointed with the UK. We are set in a space where we are getting supplier cost increases.
And whilst we are putting some price increases through to our customers, we are clearly not recovering the supply cost increases. I think the, in terms of the competitive landscape, it hasn't changed frankly. The markets remain, flattish, a little bit soggy, but nothing nothing for us to cry about. We better get on an operates in the markets that exist against the competition that exists. There is no reason to change our strategy.
I think what, you did hear me say, and I'll repeat it, is that, you know, in the UK, we laid out a strategy mark probably a year ago. September last year, you know, of, reducing our bricks and mortar, reducing our number of branches and reducing our employees. We said about 800 employees and about nearly 90 branches. Macy Branches. We have probably done about 25% of the employee reduction and about 30% of the branch closures.
We also said we look at sharpening our supply chain and revitalizing our product range to make sure we have the right offering to our customer at the right place in the right way through the right channel. I think what you will see us continue to do, is be impatient with that restructuring. We need to get on with increasing the pace, execution and delivery of those savings against the background that I've described on margin. So think you'll see us continue to accelerate that program, but no change to strategy. It's a good program.
We have a good business in the UK. We frankly need to right size the prospects, which we have already announced, but we sort of need to get on with it, and become impatient with ourselves. Does that help? Thanks.
Yes, that's very helpful. Just one last one, as you're looking to calendar 2018, the cost inflation you'd expect? Would it be similar to kind of 3% or 4% you're seeing this year or any big changes to that in the UK? In the UK kind of supplier cost inflation?
Yes. Probably not a bad number. Yes. It's probably about right.
That's really helpful. Thank you very much.
Thanks, Andy.
Thank you. Our next question comes from Gregor Pilicch from UBS. Please go ahead.
Hi, good morning guys. I've got a few questions. The first one is just on the quarterly growth. I want to understand, I think, when you September or beginning of October, you were running around SEK 6 now at SEK 7.6,000,000. So I guess the question is, did you have extremely strong October?
Or was the 6 kind of around the down number? It's actually there wasn't perhaps that arithmetic doesn't quite doesn't quite hold. The second question is on, capital return and preferences from here. I understand you haven't communicated on the sale of the Nordics, but given the quantum, is there a choice to be made between special dividend and a buyback? Or are you essentially agnostic between the 2?
I know in the past, both have been done not quite sure based on what criteria. And then can you just press in the tax bill? You said it's small positive. Can you just, when you say a small positive, are you saying that you think overall will be quite marginal? Or do you are you saying I mean, I guess I want to understand what is the definition of small So your current tax was around 28, would say, I don't know, 400, 500 basis points still fall in the category of small or would you say that's already material?
Firstly, I think your question on growth was, the math doesn't work if you plug in 6% the end of September. You're dead right. It doesn't. So yes, September was a bit better. October was a good month.
But you're right. The September 6 was probably lower than the actual, outturn. And November, as I've said, for the group is is pretty much in line with Q1. So that's why we're sort of comfortable as we look forward. In terms of capital return, The, I think your question was, you know, what's the choice?
I'm going to be really boring here. I'd like to get the cash in the bank first. We have not closed this deal. I'm not flagging that we're worried about it either. So don't take that out.
We need to get the clearance. We need to close the deal. We need to hand over the business properly and professionally. And up until then, we're in charge of this business and it needs to continue to trade very well, which it currently continues to do. Once we've got that money in, we'll go through the four buckets that I talked about very deliberately at year end, in order, the choices that we always face.
Not just because we've got some extra money in the bank as and when it lands, is organic growth its progressive dividends in term in line with long term earnings, it's M and A. And then bucket 4, as I call it, is if we've got any left we'll clearly get it back to shareholders on a reasonably prompt basis. It's only when we get there will we then make that choice if we end up in bucket 4 we'll decide how to get it back, to generate value for the shareholders. So we'll go through that process in our normal course of business and have that discussion with the board, as and when we get the deal closed, but the team are very focused with the buyer on making sure we get this deal closed and the money in the bank so that I get happier. On tax, Yeah.
Now, thanks for asking the question of clarification because I wouldn't want any misalignment. I'm trying to say that neither option as presented today are negative. 4% to 5% is big in the tax world. I mean, just to give you an idea, the 20 percent corporate tax headline, which everybody grabs onto you've got to have state taxes onto that before you even start. So that's why these headlines are quite dangerous.
That's sort of really 23%, 24%. So it's and that's just for the U. S. Group. So you know, we'll have to wait to see how the legislation pans out, but it's we're certainly not looking at a tax rate of 20 percent, if that's what the question was, a 4% reduction would be a very large tax reduction for this group.
Talking about the group rate of 28, right? That's the difference. That obviously would be a target.
Yes, but no, a 4% tax reduction I would be describing is a large reduction.
Okay. That's very good. Thank you.
The tooth, Gregor, again, just to go on record, the truth is we actually don't know. We've got lots of I don't think at the moment, it certainly doesn't feel negative, but it's not large as I've just defined.
Okay. Thank you. Thanks, Gregor.
Thank you. Our next question comes from Phil Roseberg from Bernstein. Please go ahead.
Hi, good morning, Mark and Mike. Just a couple left for me, please. One is a quick one on just clarification on your acquisition spend. You said $109,000,000 in the first quarter and your, I mean, your outlook, I think you gave at the last the full year was $200,000,000 to $300,000,000, again, for the full year 2018. How should we think about this?
I know you mentioned it was lumpy, but it's already a very good start. Any change to your 200 to 300 $1,000,000 outlook. And the second question is just to try and understand a little bit better U. S. Organic growth of 8.3%, which was a nice surprise, given the sort of the hurricanes.
Is there any way you could sort of break that out a little bit? I know there was 1% price within that, but in terms of over market growth and the sort of the let's call it the market trend, is there any change to the sort of the market trend, that you're seeing either one way or the other?
Thanks, Phil. So acquisitions 109 was a good start. There's no change to my guidance but purely felt, unfortunately, because my gardens will be wrong, because, you know, M and A is unknown. I mean, the truth is we don't know. We continue to work by find hard.
There's no change to our activity, this quarter from last quarter from the quarter before. So acquisitions just only become available when they become available. And then we do the value work to see whether that creates value for our shareholders. So no reason to change the $200,000,000 to $300,000,000. But again, very difficult to make that call The question on U.
S. Growth was trying to get a little more granularity, I think, Phil, around markets. Again, I was talking to Paul Checketts earlier on the phone. And he he asked a question which I think helps. He said Has anything really changed from when we last updated the market in October?
And the answer is no, actually. I think the markets remain good across all the sectors and our outperformance across those Four markets of resi commercial civils and industrial also remains in the same sort of area. So again, nothing's fundamentally changed from when we last spoke and it feels pretty good in the U. S. Still and our market outperformance is still good.
Yes, I mean, if you aggregate the markets, Phil, you're looking at sort of 4% to 5% market growth and we're clearly outperforming that by 2 to 300 basis points, which is what we've been doing for quite a few years, actually. So it's pretty straightforward. No massive change.
All right. Thanks very much.
Thank you. Our next question comes from Howard Seymour from Numis. Please go ahead.
Thank you. Good morning gents.
Good morning. Good morning.
Good morning. Is your question on the UK on pricing really. You alluded before both to, not comp interactions, sorry, the sort of the pushback and also scope for pushing prices up next year. Just wondering, if you're seeing that in a more specific area than you've seen previously, obviously, last year, we saw quite a big shift across the piece. But increasingly we've seen more selective price increases on commodity areas and whether that's that either helps or hinders your capability to return the gross margin?
Yes, no. Thanks, Hard. It's, I think the UK really is a the pressure points remain in the plumbing and heating business. The infrastructure business has performed well and continues to perform well. The issues for us is that frankly our cost base needs to change in our plumbing and heating basis.
So that is as we have already set out. We set out the 3 year journey we sort of need to get on and do it. Because again, others had about the U. S. Before, it isn't just all around price in this industry.
It's around having the right products in the right place at the right time to give the customer the right service through the right channel that they want. So for example, one of the the good things that's happened in the U. K, we have rolled out, electronic point of sale, electronic ordering, That's good. We now need to make sure that we're converting our customers to using some of the technologies where they want to, whether they still want a sales guy, a lot of sales guys, but we do need to get our cost base correct in terms of the cost to serve of getting the right product through the right channels to the right customers at the right price. We haven't done that.
Whilst we have the plan, we've only done, as I say, somewhere between 25% 30% of that work. So we now need to get on with that very quickly.
Yes. Okay. Thank you. And then just a second, question really, if just on the acquisitions in Holland, obviously not large, but, if we look at you acquiring into the U. S.
Canada, something I think we'd expect, but into Holland, maybe a small surprise, is there anything that you'd consider to make further acquisitions into?
I mean, firstly, just to scale on the Dutch acquisition was tiny. Very small indeed. So again, we scale it. What I would say though is any assets that we own, we'll invest appropriately in, whether that's in bucket 1, the organic growth or in bucket 3, the M and A, clearly in the UK, it is unlikely you'll see us in that bucket 3. Our Dutch business is a good business.
So it was a very small acquisition in Holland that was appropriate at the time. You will see most of our capital deployed in North America and there's no change in in that strategy Howard. And that's really just because, the opportunities in the US are plentiful. So it is a good place for us to be deploying shareholder capital into North America.
Absolutely. Late. Thank you very much.
Thanks, Alex.
Thank you. Our next question comes from Manish Biria from Societe Generale.
So I have two questions. Yes, the first question is about, one of your peer home depot who is saying they see very strong residential mark at until 2019, 2020. So the C growth in 2018, 2019 2020. So I just want to understand, do you share the same optimism The second question is, I just want to understand what was the gross margin this quarter in U. S.
And also trying to understand, I mean, how should we think about in the inflationary environment, is there some impact on your gross margin due to the pricing? Because I remember last time, in the deep listening environment, actually you gained in the gross margin because the pricing was not perfect. I mean passing on the pricing was not perfect. Should we see some negative impact in the inflationary environment on the gross margin? Thank you.
Thanks, Manish. I'll let Mark talk about Home Depot. A second gross margin, very little impact, in terms of inflationary environments managed Mark, do you want to touch on just home depot and optimism? Yes.
I mean, well, clearly, look, residential is the best market. It's the largest market for Ferguson. So I think we feel good about it. Whether or not we feel good about it in 3 years' time feels like an awfully long time for us, we only have about 5 weeks of all visibility, remember. So I think looking that far ahead, and I think that's at the limit of our visibility, but certainly as things stand, we feel pretty good about that market.
Manish, I think the U. S. Feels pretty good. I think John summed up at year end and it hasn't change, which is there's no real hotspot. It's pretty widespread both geographically and across our businesses.
We always keep an eye on that because that generally is a good indicator whether things are overheating or getting a bit too skewing. But generally, the U. S. Feels pretty good.
Right. Just one more maybe. The Nordics sale that you will do, I mean, 1,000,000,000 of disposal money. So is it reasonable to expect? I mean, this will return to the shareholder or the other way to look around is, I mean, is there any scenario when that this money will not be returned the shareholder maybe you'll get a very good acquisition or something like that?
Thanks, Panish. Yes, I think probably, we bought everybody with my 4 buckets. But, you know, we will, you know, as and when the cash lands, we will consider it like any other balance sheet decision. There is no change in strategy just because we have money in the bank. We will go through our normal process, looking at organic growth, dividends, M and A.
And then if we have surplus cash, we will get that back to shareholders. So there's no direct link between selling the Nordic and us changing our capital strategy or our group strategy whatsoever.
Okay. Yes. Thanks.
Thanks.
Our next question comes Robert Eisen from Goodbody. Please go ahead. Your line is open.
Hi, good morning, everyone. Just a few questions for myself. You talk about a 3 year journey in the UK that you announced last September. And then in the opening up the conference call, you kind of emphasized that you have to pick up the pace in terms of the cost reduction and you're kind of 25% to 30% through that process. But how should we view that 3 year journey in terms of the acceleration of it?
And that's my first question. My second question, is just around your e commerce platforms in the U. S. And how they performed, given all the chitchat about Amazon encroaching on the building materials area. So just a bit of color there.
And forgive me for a technical question. How should we think about lease accounting and the degree in which the visuals of, Ferguson's balance sheet will look and post and all the leases coming on the balance sheet and just kind of maybe a few yards, 6 or, yes, kind of some few benchmarks on that. And how should we view when that comes on? The 1 to 2 times net debt to EBITDA kind of comfort level that you talk about should we be thinking, what should we be thinking in the kind of the lease accounting world, which is we're going to have and whatever it is 12 months time?
Thanks Robert. Yeah, so on the U. K, I think when I talk about sort of, you know, accelerate the pace and execution, That's really building on John's comments from the year end, which is we're 1 year into a 3 year journey. And think it is quite natural for myself and John to be frustrated with that pace of change. We are therefore spending more time with the team a little bit more time to make sure that we are delivering, in what is a big transformation program.
So the team has done a good job but making sure we are really laser focused on those areas that will deliver the benefits as soon as possible And therefore, I think whilst there's no change to the 3 year journey, we just need to make sure that we are really focused in the flat market with supplier increases, that we are getting what we can quickly. I don't think you'll see significant delta But clearly, we want to build a better business for our customers, and for our shareholders as soon as we possibly can. So I think it is a continued focus on execution and delivery of that 3 year plan. Ecommerce platforms continue to perform well. Our B2C businesses, our bill.com, our signature businesses, had another good quarter with good growth rates.
So no change there. And the same when we talk about e commerce about B2B, again, continued progress and growth there, again, very similar rates to those we quoted at year end. So we don't see any change there. What I would say on Amazon, whilst we haven't seen any changes with the Amazon, it's not just Amazon, of course, everybody quote Amazon, but any competitors, we remain cognizant and very mindful of all of our competition as I'm sure they do about us. And we did outline our current thinking around, making sure that we are fit and ready to cope with any competitor And that's really around staying competitive on pricing, fulfilling the basic customer needs really, really, really well.
Making sure to understand and see what the customers, specific ones are and that we fulfill them. And also having the best cost base in the industry. Those are our 4 competitive areas that we will continue to push forward whether that be an Amazon or anybody else frankly. In terms of lease accounting, it is a technical question. It's probably a little early, Robert, to comment We are still working lease accounting.
We have some choices around, lease accounting, as you know. We'll clearly come back and update Of course, if I can say it doesn't really change the real world, it does change the presentation. I grant you, And it doesn't really change covenants because covenants are based, on the IFRS standard at the time you strike the covenants with the bank. So, it will change presentation as it will for all companies. And we'll clearly update the market at the right time once we've made those choices, Robert, but it's certainly on the radar.
Thank you. Our next question comes from Arnold Lehman from Bank of America. Please go ahead.
Thank you very much. Good morning, gentlemen. And couple of
left for me, please. Firstly, could I follow-up on your comments around bill.com? Is there any way we could get a bit more granularity around like the contribution, so like the $4,000,000,000 of sales in the first or how much of that is bill.com? And in terms of growth, like what would the 8% would be if you exclude bill.com that That's my first question. My second question is around your reporting.
No, basically you have the U. S, that's 90% of profits, plus a couple of lines, which are quite small or relatively small for UK and Canada. Are you considering splitting the U. S. Line into a blended branch or bill.com, waterworks, etcetera, because it's starting to look like a one line model.
For us.
Thanks, Ana. Yeah, no, I mean, in terms of quarterly reporting, we don't split, into each of our businesses. At all, we'll update the markets clearly half year in terms of more of the detail on that. But I have said that the growth rates are pretty similar to last year. In terms of reporting, we'll continue to look at reporting The half year and full year, of course, does split our businesses out into somewhat more detail and we'll continue to look at that.
But at the moment, there's no planned changes to the reporting for this year.
6% overall sales and the net margins of that business are reasonably similar or comparable to the net margins at Ferguson overall.
We'll now take our next question from John Messenger from Redburn. Please go ahead.
Hi, Mike, Mark. Just 2, if I could. 1 was sorry to come back on the UK again, but when obviously the 3.2 was all essentially price flat volume, I'm just looking at the quarterly and the comps from last year. When we think of where we are now going into the second quarter, obviously, last year, you had a big swing 3.4 negative to 3.1 positive. Was there anything anomalous last year in second quarter or is that kind of telling us, look, this this 3.2 just delivered really was kind of a 2 year cumulative flat.
And actually, with that in mind, you're maybe going to have a tougher second quarter. Is that part of the reasoning in terms of look we need to crack on and push harder on readjusting the cost base and the branch network? And could you just remind us, Mike, what is the overall cost of that program now set to be and kind of how far through that are you, just to think of the exceptionals? And the second one was just on on the group's kind of overall balance sheet structure and financing. I wonder could you just gives a view on your philosophy as to kind of the facilities you want to operate with and that I was just looking, I think at the end of last year, you had $2,300,000,000 sterling of kind of debt facilities in total.
$1,400,000,000 was undrawn. You obviously raised the $4.50 here. Do you look at the group and say, look, I want broadly 1a half times my EBITDA as my kind of total facility number? To then obviously adjust around. And just to consider because obviously you've got quite cheap revolving debt in place already.
Adding this 7 9 year money just to understand the philosophy and the reasoning behind that, if I could please?
Sure. Thanks, John. Yeah. So on the UK, your analysis is correct. So, I'm not expecting, you know, a great and quarter in the UK, I think our half year performance will continue to be difficult.
I don't think though anything fundamentally changed. Again, we don't really Q on Q is something that people on this phone call, talk to about. In terms of running the business, the environment remains, as I say, a little soggy. We have the plan and therefore, there's no reason not to execute the plan as quickly as we can. I think that's what I'm really trying to say.
And therefore, we will get on with it. But yes, you're right. I mean, I'm not expecting a great half and certainly if we get to the full year flattish in the UK this year, having executed the plan. We'll be in good shape for the year after. As I say, we have a good business in the UK, we just need to make sure it's the right size with the right service offering for our customers.
In terms of the costs and benefits, Mark, do you want to touch on that?
Yes, we talked about last September 80 branch closures 1 and a distribution center and 800 job losses. As we said earlier, we're up to about 38, branches and 200 heads. We talked about 100,000,000 of restructuring charges. We told you about, I think, in FY 'eighteen and a further $65,000,000 of exceptional $50,000,000 of that will be in cash So we should be within our guidance. We're not expecting to change that guidance.
And just on the balance sheet?
Yes, sorry, in terms of facility, sorry, I forgot that question, John. So, yeah, no, we the refinancing that you see is really just a good housekeeping. The U. S. Private placement market is a good market for us to tap.
You can see we tapped some good term debt there At good prices, it doesn't really change the, the weighted cost of debt for the group, which I always quoted around 4% to all in. We have got some facilities rolling off and that's why you just see us, with new facilities coming on. In terms of the way I tend to think about it, we tend to hold, we always try to hold in terms of liquidity about $650,000,000 of headroom anything around that number, we will hold as a headroom facilities.
Got you.
Our next question comes from Emily Bedolf from JP Morgan. Please go ahead. Your line is open.
Costs. And the first one on labor price inflation. Am I right in thinking that wage increases are actually negotiated during the summer? And therefore, that Q1's margin performance was already net of the 3 4% wage increase you're talking about for the full year? And my second question was just on ship hubs.
You obviously pulled those out as being another incremental cost for this year. But can you remind us what the rollout rate of those is and whether it's materially different to last year?
Just on the ship hubs, Emily, we're rolling out pretty slowly and often using existing facilities, but 2 to 3 year, I think we've got 3 in the plan for this financial year. So it will be absolutely incremental. And in terms of the labor cost inflation, I mean, actually, it's through the year. So there isn't a specific time of the year when some of when wages are negotiated. It actually progressively in different parts of the business at different times.
I mean, a large part of our wage bill is hourly, Emily. So that mark's dead right happens across there. So if you're thinking of modeling and whether 1 quarter is different or carried quite, I wouldn't go there. I think it's pretty well spread across the piece.
Great. Thanks.
Thanks, Emily.
Thank you.
Our last
question comes from Mr. Paul Checketts from Barclays. Please go ahead.
Hi, everyone. It's just a short one. If you talk about the Canada And Central Europe division took how do you think the outlook is for the top line and flow through generally speaking? And to what degree is the growth been driven by oil and gas markets rebounding and perhaps I'd be interested in your thoughts on you think the sustainability of that would be? Thanks.
Thanks, Paul. I thought you've been quiet. I was worried you weren't on the call at one stage. Paul, thanks for your question about Canada. Canada has, has recovered very nicely.
The, I think as we look forward, the growth rates that we have created and seen in the first quarter, there's no reason to suggest why they wouldn't carry on The recovery is relatively widespread. There has clearly been some good growth in the sort of Alberta oil type areas. Which has clearly helped. Some of that will undoubtedly be pent up demand. But I think at the moment, when I get to Canada on the ground, it feels pretty good as well.
And certainly our Canadian management team are doing a good job in markets, which feel pretty good. So I think that's pretty sustainable right now, Paul. But clearly, we would like to see another sort of 1 or 2 quarters of that come through and develop. But I think we're in a good place in Canada.
And you get good drop through margins flow margins on any work in Alberta as it comes back?
Thank you.
It appears there are no further questions at this time. Mr. Powell, I'd like to turn the conference back to you for any additional or closing remarks.
Okay. Listen, I just wanted to thank you all for your continued support and for your time on the call this morning and particularly, our US friends that are up very early. So Thanks all. Thanks for your support and look forward to updating you at the half year results at the end of March. Thanks very much.
This concludes today's call. Thank you for your participation. You may now disconnect.